AO must furnish reasons for section 148 notice and dispose objections through speaking order

ITAT Kolkata allowed the assessee's appeal challenging reopening of assessment under section 147. The AO issued notice under section 148 without supplying reasons to believe. Following GKN Drive Shaft India Ltd. SC precedent, the AO must furnish reasons within requisite time, allowing assessee to file objections which must be disposed through speaking order. Since this mandate was not complied with, the completed assessment and demand raised were quashed as bad in law.

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Issues Involved:

1. Lack of opportunity for the assessee to be heard by CIT(A).
2. Validity of the proceedings initiated under Section 147 of the Income-tax Act, 1961.
3. Non-service of notices and failure to communicate reasons for reopening the assessment under Section 148.
4. Non-compliance with the Supreme Court's mandate regarding communication of reasons for reopening.
5. Timeliness and validity of the notice under Section 148.

Detailed Analysis:

1. Lack of Opportunity for the Assessee to be Heard by CIT(A):

The assessee contended that the CIT(A) failed to provide an opportunity to be heard, rebuttal, and representation during the course of the hearing. This failure was argued to render the order void ab initio, unlawful, and against the principles of natural justice. The Tribunal noted that the assessee claimed not to have received any notices from CIT(A) regarding the hearing dates, which resulted in the assessee being unaware of the appeal's disposal. Consequently, the Tribunal acknowledged the procedural lapse in not providing the assessee an opportunity to present their case.

2. Validity of the Proceedings Initiated Under Section 147:

The assessee challenged the reopening of the assessment under Section 147, arguing that the CIT(A) did not consider the nature of the assessment and the preconditions required for initiating proceedings under this section. The Tribunal highlighted that the CIT(A) dismissed the appeal due to the assessee's failure to submit documentary evidence and explanations, which was compounded by the lack of communication regarding the reasons for reopening the assessment.

3. Non-Service of Notices and Failure to Communicate Reasons for Reopening:

A critical issue was the non-service of the reasons to believe for reopening the assessment under Section 148. The assessee emphasized that the notice was served without the accompanying reasons, which is a prerequisite for initiating such proceedings. The Tribunal found merit in this argument, noting that the reasons to believe were not communicated to the assessee within the stipulated time, which is essential for the validity of the notice under Section 148.

4. Non-Compliance with the Supreme Court's Mandate:

The Tribunal referred to the Supreme Court's decision in GKN Drive Shaft India Ltd. vs ITO, which mandates that the Assessing Officer must furnish reasons for reopening within a reasonable time. The assessee is entitled to file objections to the notice, and the AO is required to dispose of these objections by passing a speaking order. The Tribunal observed that this mandate was not complied with, as the reasons were not provided to the assessee, thus rendering the assessment and the demand raised as liable to be quashed.

5. Timeliness and Validity of the Notice Under Section 148:

The Tribunal relied on a decision from the ITAT Delhi in Balwant Rai Wadhwa vs ITO, which held that the issuance of notice and communication of reasons must occur within six years. If the reasons are not supplied within this period, the validity of the notice cannot be upheld. The Tribunal concluded that the failure to supply reasons within the statutory period invalidated the notice under Section 148, leading to the quashing of the assessment.

Conclusion:

The Tribunal allowed the appeal in favor of the assessee, quashing the assessment due to procedural lapses, particularly the failure to communicate the reasons for reopening the assessment within the required timeframe. The Tribunal did not find it necessary to adjudicate other grounds of appeal, as the jurisdictional issue was resolved in favor of the assessee. The order was pronounced in the open court on 21.04.2023.

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